Offset Program Processes: Methodology Development, Project Review, and Approvals
Michael Lazarus*Stockholm Environment Institute – US, Seattle
EPRI GHG Offsets Workshop #8June 24, 2010Washington DC
* with input from Anja Kollmuss, SEI
International research institute bridging science and policy with offices in
Sweden, UK, Thailand, Estonia, Tanzania, and US
Climate change:Policy and economic analysis, modeling and capacity building
National, state and local climate action plans Design of offset marketsAnalysis of offset methodologies and emissions outcomes
SEI and offsets
Overview
The offset project/program cycle:
Writing the rules of the road: 1 Methodology development
Getting the permit: 2 Initial assessment & approval
Logging the miles: 3 Ongoing review & credit issuance
Key Process Steps
1 Methodology developmentMethodology (protocol) development, approval, and revision
Definition of eligibility/additionality and baselines
2 Initial assessment & approvalProject Documentation
Validation
Registration / Listing
3 Ongoing review & credit issuanceMonitoring and Reporting
Verification
Certification
Issuance
Challenges for offset processesIntangible counterfactual Fungible commodity
Solid guardrails are needed to balance:rigor and integritytransaction costs and lead timesstability and predictability need for learning, innovation, and correctionintellectual property and transparencyconflicts of interestcredibility and public perception
Lessons from program experience?
Program characteristicsPurpose:
Compliance or voluntary? Pre-compliance or CSR?
Administration:Government, NGO, private, or intergovernmental?
Project locations: North America or global?
Predominant project types“Uncapped” sectors or full economy?
… influence how methodologies are developed, baselines are set, projects are MRVed and approved.
For example…
Voluntary market CDM
>50% US origination Developing countries
>>half CH4, ag and forestry; “uncapped” sectors, mostly “directs”
>2/3 and increasing: energy including indirects
Many small programs with diverse approaches (e.g. bottom up, top-down)
Large organizational infrastructure
Most programs flexible to implement significant structural changes
Significant changes need COP approval
1 Methodology development
What’s at stake?Eligibility/additionality, baselines, leakage, and monitoringRequires technical knowledge and judgment (art and science)Determines:
Who plays in the marketEnvironmental outcome
Methodology development
Who develops, reviews, and approves them?
Who pays and who plays?
How and when can they be revised?
Meth development processes
Bottom-up (CDM, VCS) Develop: proponentsReview/approve: Board/Panel or auditors (VCS)
Top-down (CAR, RGGI, CCX, ACR, CL…)Develop: Administrator (plus advisory group)Review/approve: Admin (plus stakeholders?)More amenable to standardization
Which delivers broadest & most rigorous meths? Best balances learning/correction & market certainty? Spreads risk, cost, and benefits?
… within the context and constraints of a given program
Examples
CDM HFC23 Methodology (AM0001)Very specific industrial process; proprietary data; continuous controversy
CDM Renewable Electricity (ACM0002)Built from peer-reviewed literature; generally public data; numerous revisions
CAR Forestry ProtocolTop-down development; many stakeholders, iterations, compromises
Where is methodology work most needed?
= Approved protocol or methodology= protocol or methodology under development= protocol or methodology considered for future
Alberta Offset System
American Carbon Registry (ACR)
Chicago Climate Exchange (CCX)
Clean Development Mechanism (CDM)i
Climate Action Reserve (CAR)
GE Energy Financial Services &
AES (GE‐AES)
New South Wales (NSW)
Regional Greenhouse
Gas Initiative (RGGI)
U.S. DOE 1605 (b)
U.S. EPA Climate Leaders
Voluntary Carbon Standard (VCS)ii
Agriculture
Soil sequestration iii iv v vi vii Manure management (including anaerobic
digestion)
viii ix x xi xii xiii xiv xv
Rangeland management
xvi ix iv v vi vii
Forestry Afforestation / Reforestation
xvii xviii xix xx xxi xxii xxiii xiv vi xxiv vii
Forest management xviii xix xxi vi xxv vii Forest pres.
/conservation xviii xix xxi xxii vi vii
Forest products xxvi xix xxvi vi xxvi Urban forestry xvii xix xxvii vi
Waste Management Landfill gas xxviii ix x xxix xxx xxxi xiv xxxii Waste and wastewater treatment
xxxiii
xxxiv xxxv
Reflections on methodologies
Minimize inefficiencies in bottom-up processes Involve impartial sectoral experts early and oftenMake judgment calls explicitAllow for correctionsFocus resources on the cutting edge
i.e. newer project types with large potentials (REDD, ag N2O) Compare (road test), consolidate, converge for othersSectoral benchmarks / sectoral crediting baselinesDiscountingAccounting for other financial flows (fast start finance, CIFs),NAMAs, stacking of payments for ecosystem services
And on additionality
What are the limitations of standardized additionality (and baseline) approaches? How do you account for them?
Carbon Intensity (kg CO2/kWh)
Gen
erat
ion
(kW
h)
Distribution B2: Generation from A that moves to lower CI due to the benchmark
Distribution B1: Generation from A which is unaffected by the benchmark
Distribution A: Generation by Carbon Intensity
Lazarus, Kartha, Bernow, Ruth, 1999
And on additionality
What are the limitations of standardized additionality (and baseline) approaches? How do you account for them?
Carbon Intensity (kg CO2/kWh)
Gen
erat
ion
(kW
h)
Distribution A: Generation by Carbon Intensity
Distribution A': Benchmark-Induced Generation by Carbon Intensity
Historical/Projected Benchmark
UR
FR
CR
CR = Credited ReductionsFR = Free RidersUR = Uncredited Reductions
Lazarus, Kartha, Bernow, Ruth, 1999
2 Initial assessment & approvalDetermination of consistency with program rules and methodology --typically by accredited 3rd party auditor
Typically by project administrator
By project administrator; Intensiveness varies
Typically by project administrator
In an established registry
Initial assessment & approvalIs full validation process required?
Increased certainty vs. transaction cost
Less important with standardized additionality?
Registration can occur at verification (CAR, VCS)
Can be a simple eligibility determination and “listing” (CAR)
How to ensure auditor impartiality?
3 Ongoing review & credit issuance
typically by project developer
typically by accredited auditor
typically by program administration/decision makers (not VCS)
by program administration/decision makers (or registries under VCS)
to appropriate registry accounts
Role of Public Review
Requirement for early offset recognition in Congressional C&T bills
What information should be public? Who’s the public?Who has the resources to review?How are comments accounted for?
Other issues
Permanence featuresTemporary credits, buffers, insurance, pro-rating
Accounting for leakageTools, models, discounts
Capacity to implementStaffing levels and expertise at administrators and third parties
Auditor accreditation…. etc.
Reducing transaction costs
Standardized procedures within and across programsMateriality thresholdsFlexibility in frequency of credit issuanceAggregation of projectsGuidance toolsConsistency of evaluationsMaximum transparency